Grey market premiums of IPOs in December
RateGain Travel Technologies Ltd’s initial public offering (IPO) opens on December 7 and closes on December 9.
The company provides software as a service (SaaS) to the hospitality and travel sector in India. In a highly fragmented market, RateGain is positioned to gain market share through its comprehensive, inter-operable and innovative solutions and marquee client base.
The travel and hospitality sector has been adopting technology in a big way, a market that’s estimated to grow to $11.5 billion in 2025 from $5.9 billion in 2021.
Shares in the Rs 1,335.7-crore IPO will be offered at Rs 405-425 each (face value of Re 1). The IPO consists of a fresh issuance of shares worth Rs 375 crore and an offer for sale of up to 22.6 million shares by the promoters and existing investors.
Up to 75 percent of the issue is reserved for qualified institutional buyers, 15 percent for non-institutional investors, and 10 percent for retail investors.
The shareholding of promoters stands at 65.4 percent, which will come down to 55 percent after the issue.
Investors can bid for a minimum lot size of 35 equity shares and in multiples of 35 shares thereafter. The minimum retail investment is Rs 14,875 for one lot of 35 shares, while the maximum is Rs 1,93,375 for 13 lots.
The share allotment will be decided by December 14 and unsuccessful bidders will get refunds in their bank accounts by December 15. Successful investors will get shares in their demat accounts by December 16.
RateGain shares will start trading on the BSE and National Stock Exchange on December 17.
Also read: RateGain Travel, Shriram Properties, MapmyIndia, Metro Brands IPOs this week; what should investors pick?
Most brokerages say RateGain has the first-mover advantage and are optimistic about the company’s prospects as the travel and hospitality sector is expected to witness significant growth in the near to medium term.
“The company suffered losses in the last two years. However, as things will normalise post-Covid, we see bright prospects for the company,” said Santosh Meena, head of research at Swastika Investmart.
RateGain has an asset-light business model with a strong management team, he added. The company is valued at a P/BV multiple of 16x on its NAV of Rs 26 for FY21.
Meena said the company is a first-mover and assigned a “subscribe” rating to the public issue for moderate listing gains. Investors can also consider the issue from a long-term perspective.
High revenue concentration from top clients is a key risk for RateGain, said Prabhudas Lilladher. The brokerage added that “the price band of Rs 405-425 implies P/S of 18x on FY21 sales of Rs 250 crore”.
Global vertical SaaS peers are trading at P/S of ~14x FY21 sales.
“We believe premium valuations are justified given its superior non-replicable product portfolio and highly predictable, scalable and profitable business model,” Prabhudas Lilladher said, assigning a “subscribe for long term gains” rating to the issue.
“At this juncture, the issue appears to be aggressively priced on negative earnings status and may generate interest in investors for first-mover advantage post-listing,” said Sharad Chandra Shukla, director, Mehta Equities.
Overall negative earnings status is a concern as of now but growth prospects are optimistic in nature.
“Only risk-seeking investors can consider subscribing to the IPO with a long-term perspective,” Shukla advised.
“Though RateGain has been making losses from FY20, it is a market leader in social media solutions with a loyal customer base and has a diversified management team with domain expertise,” said Arihant Capital Markets.
It advises aggressive investors to “subscribe” to the issue for listing gains as its growth trajectory looks promising.
Reliance Securities recommends “subscribe with a long-term perspective” because “the company has high growth potential, unique business propositions with minimal competition and valuation comfort”.
RateGain started operations in 2004 with the introduction of a price comparison product for hotels. Since then, it has offered products in rate intelligence, cognitive revenue management, smart distribution and brand engagement.
The products are offered across a range of verticals including hotels, airlines, online travel agents, meta-search companies, vacation rentals, package providers, car rentals, rail, travel management companies, cruises and ferries.
It is one of the largest aggregators of data points in the world for the hospitality and travel sector.
The company posted revenue of Rs 131.2 crore and a loss of Rs 8.34 crore in the five months ended August 31. Though the company has incurred a loss since FY20 due to the amortisation of the cost of acquisitions and depreciation provisioning, its gross margins have been above 76 percent during this period.